The engine to power the next generation of African miners which is flexible, scalable and affordable!

by Johan Theron, Director at Deloitte Consulting

The new mining environment in South Africa and Africa is all about entrepreneurial flair and fast reaction to volatile commodity markets. These miners want flexible, scalable and affordable back-office support.

This article was written by Johan Theron at Deloitte Consulting. If you have any questions or would like to arrange a more detailed discussion, contact Johan at jtheron@deloitte.co.za or +27 12 482 0514

It seems like there is a new scramble for Africa under way at the moment. Africa’s rapidly urbanising and increasingly affluent populations are certainly an attractive potential consumer market, but the real driver is global hunger for Africa’s mineral wealth. There’s also no doubt that Africa’s attractiveness as a market for goods and services also ultimately depends on the profits from mining Africa’s minerals.

The markets may be hungry for African minerals but they are also highly volatile—and look set to remain so. Long-term planning is thus much more difficult, but mining still requires significant long-term investment. Strong demand has also bred strong competition: it is now feasible to exploit smaller, less concentrated ore bodies. As a result, there are many more mining operations across the continent, and ownership is not nearly as concentrated as it once was. In part, at least, this trend is driven by Africa’s determination to participate much more actively in the mining value chain in order to ensure that more benefits remain on the continent.

In South Africa, in particular, the need for black economic empowerment has seen the birth of many junior miners, some of which have been hived off from larger entities. However they were formed, these ventures are primarily aimed at spreading South Africa’s economic wealth more broadly.

This changing mining landscape is driving the emergence of a new breed of entrepreneurial miners.

A new breed of miner

These new-generation miners are a far cry from the traditional mining houses with their impressive head offices and centralised, highly skilled finance, HR and IT teams. The new miners are building up their businesses—thus they are concentrated on exploration, followed by the creation of the infrastructure to support a mining operation and get the product to market.

All of this activity is, one should not forget, taking place at a time of severe fiscal constraint. Overheads thus need to be kept low, and fixed costs are much preferred because they make planning much easier. At the same time, as I noted earlier, demand has bred fierce competition: these companies definitely need to be run efficiently and to meet their delivery commitments.

These conditions place executives in a tight spot. Their main focus has to be entrepreneurial as they help to clinch new deals and partnerships, and generally create the strategy needed to prosper. They don’t have time to worry about day-to-day back-office operations although, at the same time, of course, they are dependent on them for cash flow.

A long established solution to challenges of this nature is, of course, to outsource some of the vital but non-core processes like payroll, HR or IT. Talking to these executives, it becomes apparent that payroll and IT are the processes most outsourced, but that other processes are rapidly catching up. The benefits include reduced risk and increased efficiencies—not to mention cost savings that, in our experience at Deloitte, can reach 30%. Benefits also include the flexibility to scale operations up or down according to business strategy, better regulatory compliance, a stronger control environment and access to global skills as needed.

Next-generation mining outsourcing for next-generation miners

Mining is one of the engines of our country’s and Africa’s future prosperity. I believe that this new breed of miner cries out for a new outsourcing model in which the key non-core back office processes are outsourced to a single vendor. The reason behind this thinking is, I think, compelling.

The first element of this thinking is that mining companies need to standardise on best practices appropriate to their sector. The days of extensive (and expensive) customisation are over. Both the systems and the back-office processes they enable should become background utilities comparable to water and electricity.

This is a welcome development because at one stroke it prevents companies from remaining hostage to the status quo—especially as the status quo might not have been optimal in the first place. It also means that software upgrades are easy and quick as there is no need to undergo the expensive customisation process each time.

Another key driver for today’s miners is the need to be able to predict costs accurately. This ability helps protect the bottom line and gives companies the flexibility to invest in their core activities.

Pulling all of this thinking together, I would propose the creation of an integrated solution based on an enterprise system that is preconfigured with best-practice mining processes. I would argue that it makes sense to outsource the financial processes that are enabled by this preconfigured system to the same vendor—along with the necessary IT infrastructure. It’s a winning approach because it enables process efficiencies across what is essentially a tightly integrated ecosystem. Along with these process efficiencies come significant cost reductions, as well as an easy-to-manage relationship with a single vendor.

The benefits for the next-generation mining house are manifold. As I have made clear, these operators are entrepreneurial in nature and are heavily into the investment phase of their life cycles. This type of approach gives them the freedom to focus on their core business strategy, secure in the knowledge that their non-core business back office operations are taken care of—and are optimised for the mining environment. The fixed, “pay as you go” cost structure means that CFOs can plan better, and can focus their efforts on growth activities.

A solution constructed along these lines has the advantage of being quick to implement (anything from four to six months would be standard, in our experience)—and it gives the small or mid-sized mining house a Rolls-Royce engine that it does not need to own or manage, but that that will give it the power it needs to do great things. Deloitte makes pioneering on the world’s final investment frontier easy.

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Filed under: Executive Leadership, Mining, Energy & Resources, access to global skills, Africa, back-office support, best practice mining processes, business strategy, CFO, cio, control environment, core business, cost savings, Deloitte Consulting, energy, financial processes, flexibility, IT, IT infrastructure, mineral wealth, minerals, mining, mining outsourcing, outsourcing, outsourcing model, payroll, preconfigured system, predict costs, processes, regulatory compliance, resources, single vendor, South Africa

The easiest way to participate in Africa’s exponential growth – In Africa, from Africa

This article, written by Francois Burger and Pieter Louw of Deloitte Business Process Solutions, talks about the challenges associated with expansion into Africa in terms of technology infrastructure and resources and ways to address this. If you would like to find out more, contact Francois or Pieter at fburger@deloitte.co.za or pilouw@deloitte.co.za.

Foreign direct investment in Africa has increased strongly over the past decade, and capital inflows are forecast to reach US$ 150-billion by 2015. Inevitably, this improvement in investor perceptions is the basis for global business leaders to include Africa in their strategic plans.

However, this rapid expansion and capital investment are placing an intolerable pressure on the people, processes and technology currently available to organisations intending to participate in Africa’s development.

Too little too soon

When it comes to execution of expansion strategies, the desperate shortage of skilled management resources in Africa’s developing economies makes most organisations too dependent on a few key people, most of them being expatriates. Thus, the war on talent is becoming increasingly fierce, triggering a high staff turnover in business-critical areas such as financial, procurement, human resources and technology management. Succession planning is almost unattainable, putting business continuity at risk.

Without the skills and experience required to design and implement them and without the information systems to subsequently monitor them, business processes are woefully immature. Reporting is irregular and infrequent, controls are random and often ad hoc, and governance is theoretical at best. Process workarounds are the norm.

Technology, which should be the means of catapulting Africa into the mainstream global economy, is limited very often by ageing legacy systems, the lack of infrastructure to support high speed, the lack of secure data exchange, inadequate system and network support and insufficient direction of technology strategy.

Professional services are thin on the ground and highly fragmented, with limited integration across different functional service areas.

The answer already exists

As is often the case, however, the challenges of Africa’s growth contain within them their own solution.

Since there is fragmentation of people, processes, technology and professional services, the answer then is to tap into integrated capabilities across all four areas. There is also very little depth of strategic and operational experience. Why not take advantage of a single, coherent source of experience that has been garnered across all industry sectors in many differently sized organisations in many different areas of the world, including Africa?

And, if infrastructure is lacking, why not gain the Opex and Capex benefits of sharing infrastructure? 

In other words, if one applies the opposite to each negative, one can begin to create a realistic, cost-effective way of being in Africa as it reaches its tipping point.

The approach we suggest when expanding into Africa:

• If you are unable to comfortably manage your own technology infrastructure and associated resource requirements, shared services is a viable option
• Work with a reputable organisation that already has a footprint in Africa and has the ability to attract and retain talent
• Things to look for in a shared service provider is the ability to combine centralised strategic skills with on-the-ground, in-country, operational specialisation
• The shared service provider should enable you to tap into collective, multi-disciplinary, integrated skills and experience and still get a solution tailored to your  own particular needs
• Look for a reputable service provider that has an established service delivery centre that provides flexible models from where you may draw integrated professional services
• You should have access to a central pool of subject matter experts and proven methodologies and operational resources through in-country specialists who are supported by local offices
• Work with a provider that has strategic partnerships in place with third-party suppliers, such as network operators and IT infrastructure providers, who have the same strategic approach and in-country operational experience

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Filed under: Executive Leadership, Finance, Information Technology, Risk Management, Talent & Human Capital, Africa, capital investment, Deloitte, developing economies, rapid expansion, resources, shared services, technology infrastructure

Oil and gas reality check 2011 – 10 of the top issues facing the oil sector

This is the second year Deloitte Touche Tohmatsu Limited’s Global Energy & Resource group has published its oil and gas trends and issues analysis for the year ahead.

Bearish economic indicators released in the last few weeks notwithstanding, oil prices are pushing upward, testing the upper limits of the US$ 70 – 80 per barrel range. Serving as a simple yet global and unified measure of economic recovery, it is oil’s price range and the strength and sustainability of the recovery that will impact the ways in which all forms of energy are produced and consumed.

Among the trends and issues explored, China continues to be a priority for many oil and gas executives as they continue to be impacted by that country’s demand for fossil fuels. On the supply side, China’s desire for additional sources of oil and natural gas are expected to continue in the short-term, leading to more mergers and acquisitions within the sector.

Despite the setbacks experienced as a result of the Deepwater Horizon spill, deepwater drilling shows no signs of abating any time soon. Although increased regulatory scrutiny will be the norm going forward, oil and gas companies are demonstrating the same zeal as before although they will need to further quantify the risks. This will include making the “safety case” to government regulators, which details the well-specific tasks and the assignment of risk management responsibilities to all parties.

The methodology for developing this report included in-depth interviews with clients, energy industry analysts and the most senior energy practitioners from Deloitte member firms around the world. I am most grateful to all of them who offered up their insights and expertise at a point when their time and attention was in high demand.

Adi Karev (Global Oil & Gas Leader – Deloitte Touche Tohmatsu Limited)

Download the full report . . . . Oil and Gas Reality Check 2011 – 10 of the top issues facing the oil sector

Visit the Deloitte Consulting website

Filed under: Mining, Energy & Resources, Deloitte, energy, oil and gas, resources